2024 (11) TMI 391 - SC - Customs

Jurisdiction of DRI officers to issue show cause notices under Section 28 of the Customs Act, 1962 - Review Petitions in the Canon India 2021 (3) TMI 384 - SUPREME COURT batch - whether the officers of DRI would be proper officers in light of Section 28(11) - petitions challenging the constitutional validity of Section 97 of the Finance Act, 2022? - Whether there is an error apparent on the face of the record for the purpose of entertaining the review petition? - HELD THAT - The assignment of functions of proper officers as mentioned in Section 2(34) and entrustment of functions of customs officers as mentioned in Section 6 operate on different planes. The assignment of functions of the proper officer is to be done only to officers of customs (whether they be appointed under Section 4 or entrusted with certain functions under Section 6). There may be some overlap between the assignment of functions of proper officers under Section 2(34) read with Section 5 and the entrustment of functions of officers of customs under Section 6 in some instances but there can be no scenario in which we can hold that the functions under Section 6 and Section 2(34) are congruent. One of the bases for the decision in Canon India 2021 (3) TMI 384 - SUPREME COURT was that no entrustment of functions under Section 6 was done in favour of the DRI officers. This, however, is a glaring misapplication of Section 6 of the Act and is in ignorance of the applicable law which is in fact Sections 2(34) read with Section 5 of the Act, 1962. Therefore, in light of the judgment of this Court in Yashwant Sinha 2019 (11) TMI 1775 - SUPREME COURT we find that it is necessary to allow this review petition to do complete justice. Order - DRI officers came to be appointed as the officers of customs vide Notification No. 19/90-Cus (N.T.) dated 26.04.1990 issued by the Department of Revenue, Ministry of Finance, Government of India. This notification later came to be superseded by Notification No. 17/2002 dated 07.03.2002 issued by the Department of Revenue, Ministry of Finance, Government of India, to account for administrative changes. The petition seeking review of the decision in Canon India (supra) is allowed for the following reasons a. Circular No. 4/99-Cus dated 15.02.1999 issued by the Central Board of Excise Customs, New Delhi which empowered the officers of DRI to issue show cause notices under Section 28 of the Act, 1962 as well as Notification No. 44/2011 dated 06.07.2011 which assigned the functions of the proper officer for the purposes of Sections 17 and 28 of the Act, 1962 respectively to the officers of DRI were not brought to the notice of this Court during the proceedings in Canon India (supra). In other words, the judgment in Canon India (supra) was rendered without looking into the circular and the notification referred to above thereby seriously affecting the correctness of the same. b. The decision in Canon India (supra) failed to consider the statutory scheme of Sections 2(34) and 5 of the Act, 1962 respectively. As a result, the decision erroneously recorded the finding that since DRI officers were not entrusted with the functions of a proper officer for the purposes of Section 28 in accordance with Section 6, they did not possess the jurisdiction to issue show cause notices for the recovery of duty under Section 28 of the Act, 1962. The reliance placed in Canon India (supra) on the decision in Sayed Ali 2011 (2) TMI 5 - SUPREME COURT is misplaced for two reasons first, Sayed Ali (supra) dealt with the case of officers of customs (Preventive), who, on the date of the decision in Sayed Ali (supra) were not empowered to issue show cause notices under Section 28 of the Act, 1962 unlike the officers of DRI; and secondly, the decision in Sayed Ali (supra) took into consideration Section 17 of the Act, 1962 as it stood prior to its amendment by the Finance Act, 2011. However, the assessment orders, in respect of which the show cause notices under challenge in Canon India (supra) were issued, were passed under Section 17 of the Act, 1962 as amended by the Finance Act, 2011. This Court in Canon India (supra) based its judgment on two grounds (1) the show cause notices issued by the DRI officers were invalid for want of jurisdiction; and (2) the show cause notices were issued after the expiry of the prescribed limitation period. In the present judgment, we have only considered and reviewed the decision in Canon India (supra) to the extent that it pertains to the first ground, that is, the jurisdiction of the DRI officers to issue show cause notices under Section 28. We clarify that the observations made by this Court in Canon India (supra) on the aspect of limitation have neither been considered nor reviewed by way of this decision. Thus, this decision will not disturb the findings of this Court in Canon India (supra) insofar as the issue of limitation is concerned. The Delhi High Court in Mangali Impex 2016 (5) TMI 225 - DELHI HIGH COURT observed that Section 28(11) could not be said to have cured the defect pointed out in Sayed Ali (supra) as the possibility of chaos and confusion would continue to subsist despite the introduction of the said section with retrospective effect. In view of this, the High Court declined to give retrospective operation to Section 28(11) for the period prior to 08.04.2011 by harmoniously construing it with Explanation 2 to Section 28 of the Act, 1962. We are of the considered view that the decision in Mangali Impex (supra) failed to take into account the policy being followed by the Customs department since 1999 which provides for the exclusion of jurisdiction of all other proper officers once a show cause notice by a particular proper officer is issued. It could be said that this policy provides a sufficient safeguard against the apprehension of the issuance of multiple show cause notices to the same assessee under Section 28 of the Act, 1962. Further, the High Court could not have applied the doctrine of harmonious construction to harmonise Section 28(11) with Explanation 2 because Section 28(11) and Explanation 2 operate in two distinct fields and no inherent contradiction can be said to exist between the two. Therefore, we set aside the decision in Mangali Impex (supra) and approve the view taken by the High Court of Bombay in the case of Sunil Gupta (supra). Validity of the Finance Act, 2022, particularly Section 97 - Section 97 of the Finance Act, 2022 which, inter-alia, retrospectively validated all show cause notices issued under Section 28 of the Act, 1962 cannot be said to be unconstitutional. It cannot be said that Section 97 fails to cure the defect pointed out in Canon India (supra) nor is it manifestly arbitrary, disproportionate and overbroad, for the reasons recorded in the foregoing parts of this judgment. We clarify that the findings in respect of the vires of the Finance Act, 2022 is confined only to the questions raised in the petition seeking review of the judgment in Canon India (supra). The challenge to the Finance Act, 2022 on grounds other than those dealt with herein, if any, are kept open. Subject to the observations made in this judgment, the officers of Directorate of Revenue Intelligence, Commissionerates of Customs (Preventive), Directorate General of Central Excise Intelligence and Commissionerates of Central Excise and other similarly situated officers are proper officers for the purposes of Section 28 and are competent to issue show cause notice thereunder. Therefore, any challenge made to the maintainability of such show cause notices issued by this particular class of officers, on the ground of want of jurisdiction for not being the proper officer, which remain pending before various forums, shall now be dealt with in the following manner Where the show cause notices issued under Section 28 of the Act, 1962 have been challenged before the High Courts directly by way of a writ petition, the respective High Court shall dispose of such writ petitions in accordance with the observations made in this judgment and restore such notices for adjudication by the proper officer under Section 28. Where the writ petitions have been disposed of by the respective High Court and appeals have been preferred against such orders which are pending before this Court, they shall be disposed of in accordance with this decision and the show cause notices impugned therein shall be restored for adjudication by the proper officer under Section 28. Where the orders-in-original passed by the adjudicating authority under Section 28 have been challenged before the High Courts on the ground of maintainability due to lack of jurisdiction of the proper officer to issue show cause notices, the respective High Court shall grant eight weeks time to the respective assessee to prefer appropriate appeal before the Customs Excise and Service Tax Appellate Tribunal (CESTAT). Where the writ petitions have been disposed of by the High Court and appeals have been preferred against them which are pending before this Court, they shall be disposed of in accordance with this decision and this Court shall grant eight weeks time to the respective assessee to prefer appropriate appeals before the CESTAT. Where the orders of CESTAT have been challenged before this Court or the respective High Court on the ground of maintainability due to lack of jurisdiction of the proper officer to issue show cause notices, this Court or the respective High Court shall dispose of such appeals or writ petitions in accordance with the ruling in this judgment and restore such notices to the CESTAT for hearing the matter on merits. Where appeals against the orders-in-original involving issues pertaining to the jurisdiction of the proper officer to issue show cause notices under Section 28 are pending before the CESTAT, they shall now be decided in accordance with the observations made in this decision. We allow the Review Petition insofar as the issue of jurisdiction of the proper officer to issue show cause notice under Section 28 is concerned. As discussed, the findings of this Court in Canon India (supra) in respect of the show cause notices having been issued beyond the limitation period remain undisturbed. We set aside the decision of the High Court of Delhi rendered in the case of Mangali Impex 2016 (5) TMI 225 - DELHI HIGH COURT and uphold the view taken in the case of Sunil Gupta 2014 (12) TMI 151 - BOMBAY HIGH COURT We also uphold the constitutional validity of Section 97 of the Finance Act, 2022.

Summary

Issues Involved:

1. Error apparent on the face of the record in the Canon India judgment.
2. Jurisdiction of DRI officers to issue show cause notices under Section 28 of the Customs Act, 1962.
3. Interpretation and application of Sections 17 and 28 of the Customs Act, 1962.
4. Constitutional validity of Section 28(11) of the Customs Act, 1962.
5. Validity of the Finance Act, 2022, particularly Section 97.
6. Impact of amendments made by the Finance Act, 2022 on past actions.

Detailed Analysis:

1. Error apparent on the face of the record in the Canon India judgment:

The Supreme Court acknowledged that the judgment in Canon India was delivered without considering crucial notifications and circulars, specifically Circular No. 4/99-Cus dated 15.02.1999 and Notification No. 44/2011 dated 06.07.2011, which empowered DRI officers to issue show cause notices under Section 28. The Court noted that these documents were not presented during the original proceedings, leading to an incorrect conclusion about the jurisdiction of DRI officers. The review petition was allowed on this basis, highlighting that the statutory scheme of Sections 2(34) and 5 was not properly considered in the original judgment.

2. Jurisdiction of DRI officers to issue show cause notices under Section 28:

The Court clarified that DRI officers are "proper officers" for the purposes of Section 28, as they were appointed as officers of customs under Section 4 and assigned functions under Section 5. The judgment in Canon India, which held that DRI officers lacked jurisdiction, was based on an erroneous interpretation of the statutory scheme. The Court emphasized that the assignment of functions under Section 2(34) and Section 5 suffices for DRI officers to issue notices under Section 28, without requiring entrustment under Section 6.

3. Interpretation and application of Sections 17 and 28 of the Customs Act, 1962:

The Court found no statutory linkage between Sections 17 and 28, contrary to the interpretation in Canon India. Section 17 pertains to self-assessment and re-assessment, while Section 28 involves recovery of duties not levied or short-levied. The functions under these sections are distinct, and the requirement that the same officer handle both is not supported by the statutory scheme. The changes to Section 17 introduced by the Finance Act, 2011, which were not considered in Canon India, further support this distinction.

4. Constitutional validity of Section 28(11) of the Customs Act, 1962:

The Court upheld the constitutional validity of Section 28(11), which retrospectively validated actions taken by officers of customs, including DRI officers, prior to 06.07.2011. The provision was enacted to address the issues raised in Sayed Ali and was found to effectively cure the defects identified therein. The Court disagreed with the Delhi High Court's decision in Mangali Impex, which had limited the retrospective application of Section 28(11).

5. Validity of the Finance Act, 2022, particularly Section 97:

Section 97 of the Finance Act, 2022, which retrospectively validated show cause notices issued under Section 28, was upheld as constitutional. The Court found that the provision effectively addressed the issues identified in Canon India and was not arbitrary or disproportionate. The amendments made by the Finance Act, 2022, were deemed clarificatory and did not alter the statutory scheme in a manner that would render past actions invalid.

6. Impact of amendments made by the Finance Act, 2022 on past actions:

The amendments introduced by the Finance Act, 2022, including Sections 86, 87, 88, and 94, were found to be clarificatory and intended to streamline the assignment of functions to customs officers. The retrospective application of these amendments was upheld, and the Court clarified that they do not invalidate past actions taken by DRI officers. The amendments were seen as a legislative response to the evolving legal landscape and administrative needs.

Conclusion:

The review petition was allowed, setting aside the decision in Canon India regarding the jurisdiction of DRI officers. The Court upheld the constitutional validity of Section 28(11) and Section 97 of the Finance Act, 2022, affirming that DRI officers are competent to issue show cause notices under Section 28. The Court directed that pending cases challenging the jurisdiction of DRI officers be disposed of in accordance with this judgment.